Despite a rise in sales, Marks Electrical has seen a significant drop in profit.
- Profits for the six months to 30 September have nearly halved, reaching £820,000.
- Sales increased by 9.3%, attributed to strong growth in consumer electronics.
- The average order value dropped by 9% as shoppers opted for lower-priced products.
- Future sales are projected at £120m, with challenges expected due to national insurance costs.
Marks Electrical has experienced a noteworthy disparity in its recent financial performance. While the company’s sales rose by 9.3% to £58.8m, its underlying pre-tax profit for the six months ending 30 September plunged to £820,000 from £1.6m the previous year. This juxtaposition is primarily driven by a shift in consumer behaviour, with shoppers opting for more affordable products, consequently decreasing the average order value by 9%.
The retailer’s adjustment to consumer demand patterns has led to varied results. Although there was notable volume growth across crucial segments like major domestic appliances and consumer electronics, the emphasis on non-premium products has resulted in a diluted premium average order value. This strategic shift, while beneficial in catering to current market conditions, appears to have impacted profit margins significantly.
Marks Electrical forecasts a challenging road ahead. It aims to reach £120m in sales, alongside an expected EBITDA of over £4m. However, the anticipated increase in national insurance employer contributions, estimated to impose an annual cost of £750,000, presents a formidable hurdle.
Company chief executive Mark Smithson acknowledged the dual structural changes within the business in the first half, including the departure from Euronics and the integration of a new ERP system. He stressed that these changes, although initially challenging, were essential for long-term business positioning.
Smithson stated, “As the consumer has continued to trade down, we have evolved our business… leading to an erosion in our premium average order value.” He added that the company plans to pivot back to its traditional premium-focused model to potentially mitigate rising distribution costs.
The strategy of reverting to a higher-end product focus suggests an attempt to balance revenue growth with profitability. While this redirection might hinder the pace of revenue growth, the longer-term aim is clear: to bolster profitable market share gains and ascend as the UK’s leading premium electrical retailer.
Marks Electrical is navigating a complex landscape of increased sales but reduced profitability, striving to realign its strategy for sustainable growth.
